Declaratory Judgment Action for Determination of Rent Under Recent Economic DevelopmentsJanuary 2022, Erdemir&Özmen Attorney Partnership
Declaratory Judgment Action for Determination of Rent Under Recent Economic Developments
For reasons such as occurrence of a considerable increase in the value of the real estate subject to the lease agreement, a change in the economic balances, or a significant decrease in the turnover, the lessee or the lessor may request for a revision of the rent or the rent increase they have agreed upon and determined at the time of the establishment of the lease agreement.
In order for the rent to be re-determined, the lessor or the lessee may accordingly bring an action while the lease agreement survives. These actions are called “Declaratory Judgment Action for Determination of Rent”. Thus, the court may re-determine the rent, after carrying out a review on the terms of the agreement.
This newsletter provides general information on the declaratory judgment actions for determination of rents.
In what circumstances is it possible to bring a declaratory judgment action for determination of rent?
As is known, the lessee and the lessor may reach a consensus on the rent, or there may be no consensus between the parties in this regard.
The declaratory judgment action for determination of rent is regulated by the articles 344 and 345 of the Turkish Obligations Code numbered 6098 (“the TOC” or “the Code”).
The TOC art. 344, effective for house and roofed workplace leases as of 01.07.2020, is as follows:
“The parties’ consensus on the rent to be applicable for the renewed lease periods shall be valid, provided that it does not exceed the rate of change depending on the twelve months’ averages in the consumer price index within the preceding lease year. This rule shall also apply to the lease agreements with a term longer than one year.
In case the parties have not reached a consensus on this matter, the judge shall determine the rent in accordance with the principle of equity by taking into consideration the condition of the leased property, provided that it does not exceed the rate of change depending on the twelve months’ averages in the consumer price index of the preceding lease year.”
The Code determines the rate of increases to be made for the renewed lease periods, depending on whether the rent is set by and between the parties. In cases where the rent is not set by and between the parties, the Code prescribes that a new rent can be determined after the aforementioned action is brought before the court, provided that such new rent does not exceed this rate of increase.
As can be seen, even if the parties have reached a consensus on the rent; in the lease agreements with a term longer than five years or which are renewed after five years, and at the end of each five years thereafter, the judge can determine the rent to be applicable in the new lease year, in compliance with the principle of equity by taking into consideration the rate of change depending on the twelve months’ averages in the consumer price index, the condition of the leased property and the precedent rents.
Accordingly, also in such agreements, it is possible to file an application with the court and request for the determination of the rent. Unlike the circumstances explained above, the courts are not, in respect of such agreements, bound by the CPI rate depending on the twelve months’ averages while the increase is made, and may only assess this rate as one of the criteria to be taken into account in determining the rent.
To summarize within this context:
If the parties have reached a consensus on the rent and the lease term is shorter than 5 years; the parties may freely determine the rate of increase in the rent, provided that it does not exceed the CPI increase rate for the preceding lease year. It will not be possible to bring a declaratory judgment action for determination of rent, if such consensus has been reached within the statutory limitations and the lease term does not exceed 5 years.
If there is no consensus between the parties and the lease term is shorter than 5 years; the declaratory judgment action may be brought in this case, and the parties may request the court to determine the rent, the rate of increase, etc. The court shall determine these matters by taking into consideration the present circumstance and the precedent values. However, at this point, the rate of increase in the rent shall be determined at such a rate not exceeding the CPI increase rate for the preceding year.
In the lease agreements with a term longer than five years or which are renewed after five years; it is possible to bring a declaratory judgment action for determination of rent, regardless of whether there is a consensus between the parties. At this point, the precedent real estates, the condition of the real estate, the CPI increase rate, the principle of equity and other mattes shall be taken into consideration, and a rent shall be determined accordingly. (At this point, the CPI increase rate for the precedent year is not restrictive upon the judge.)
If the rent is agreed in a foreign currency in the lease agreement; the rent shall not be revised unless five years have elapsed, without prejudice to the provisions of the Law dated 20.2.1930 and numbered 1567 on the Protection of Value of Turkish Currency. However, the provisions of the article 138, entitled “Extreme difficulty of performance”, in the Code are reserved. In determining the rent after five years have elapsed, the provisions of the third paragraph shall apply by also taking into consideration the changes in the value of the foreign currency.
When and before what court is it possible to bring a declaratory judgment action for determination of rent?
Within the scope of the above; as a rule, it is possible to bring at any time a declaratory judgment action for determination of rent. Nonetheless, the lease period to which the court decision shall apply may, however, vary depending on the date the action is brought.
If it is intended that the rent, which will be adjudged at the conclusion of the declaratory judgment action, be applicable from the start of the new lease period; the declaratory judgment action must be brought no later than 30 days prior to the start of the new lease period, or the lessor must give written notice to the lessee within this period of time, stating that the rent will be increased.
Otherwise, the decision rendered by the court shall start to apply to the next lease period. However, if the lease agreement contains a provision prescribing that the rent shall be increased for the new lease period; the rent, which will be determined by the court in the declaratory judgment action to be brought by the end of the new lease period, shall also be binding on the lessee from the start of this period.
A declaratory judgment action for determination of rent must be brought before the civil court of peace at the location of the real estate. However, in order for this declaratory judgment action to be brought, there must be an effective lease agreement between the parties and there must be legal benefit in bringing this action.
On the other hand, as a method preferred frequently in practice before the declaratory judgment action for determination of rent is brought, it is also observed that the party who requires a revision in the rent submits this request to the other party in a letter of notification prior to the start of the new lease period. By means of this procedure, it becomes possible to reveal that the aforementioned request has been submitted and to understand the other party’s will regarding this request, and this procure provides ease of proof as well. Furthermore, this method is also effective in terms of determining the period for which the new rent shall be applicable, as well as determining the time when the action should be brought.
In addition, it is of importance for the plaintiff party to state his requests expressly and precisely while bringing such action. Otherwise, it would not be possible for the judge to determine on his own motion a rent for a lease period in respect of which there is no request submitted by the plaintiff, since the request is restrictive upon the judge due to the Civil Court Procedures Law numbered 6100 (“the CCPL”).
The following verdict is established in the judgment numbered 2020/2296 E., 2020/3034 K., dated 16.06.2020 and rendered by the 3rd Civil Chamber of the Supreme Court of Appeals:
“In the present case, the parties conclude a lease agreement whose term is one year, and effective date is 01.11.2010, and there is no dispute on the fact that the plaintiffs’ request is for the declaration of the rent to be effective as of 01.11.2013. Accordingly, while the local court determines the rent, the local court should have declared the rent for the period between 01.11.2013 and 01.11.2014 as stated by the plaintiffs in their lawsuit petition. However, the local court established the verdict as written in its decision, without observing the requirement of the principle that “the request is restrictive upon the judge”, which is contained in the article 26 of the Civil Court Procedures Law numbered 6100 and is one of the principles ruling the trials. Therefore, it becomes necessary to reverse the decision rendered by the local court.”
As can be seen, the above verdict established by the Supreme Court of Appeals emphasizes that the request is restrictive upon the judge.
What are the matters to be taken into consideration while determining a rent by the court?
Pursuant to the established jurisprudences of the Supreme Court, the principle of “equity” must be observed by the courts while determining a rent.
On the other hand, the courts must also take into consideration certain matters such as the actual condition of the real estate, how long the lessee uses the real estate and the rents of the precedent real estates; and thus, the courts must consider if it is necessary to reduce the rent pursuant to the principle of equity.
Within the framework of these explanations, in case it becomes necessary to revise the rent or the increases in the rent for the reasons referred to above, or due to the failure of the parties to reach a consensus in this regard, either the lessee or the lessor has the right to apply for the court and to request the court to determine the rent, provided that the necessary conditions have taken place.
Accordingly, in case the conditions have taken place, the court can determine a rent by assessing the agreement terms and the rents of the precedent real estates, provided that the court renders its decision within the boundaries of the request.